RSS
Why China should bail out the eurozone: 3 theories
The EU is practically begging for a financial lifeline from the world's most populous nation. China isn't eager to get involved — but maybe it should be
 
Chinese Premier Wen Jiabao talks with European Union leaders in Beijing on Tuesday: Europe hopes China will use some of its $3.2 trillion in foreign exchange reserves to bail out the struggling eurozone.
Chinese Premier Wen Jiabao talks with European Union leaders in Beijing on Tuesday: Europe hopes China will use some of its $3.2 trillion in foreign exchange reserves to bail out the struggling eurozone.
Getty Images

As the European debt crisis lurches into its third year, super-rich China finds itself with cash-strapped European suitors lining up on its doorstep. With $3.2 trillion in foreign exchange reserves, China appears to be in prime position to provide a lifeline to the debt-beleaguered continent. Prime Minister Wen Jiabao recently pledged China's aid, but his vague promise didn't entail any firm commitments, and many Chinese officials are still wary of exposing the country to risky bonds from Greece and other debt-burdened European nations. But maybe they should think again. Here, three reasons why China would be wise to rescue Europe:

1. If Europe falters, it would cripple China's economy 
China's economic growth could be cut in half if the eurozone enters a recession, warns the International Monetary Fund. With annual trade valued at 560 billion euros ($730 billion), Europe is China's largest trading partner. In addition, Chinese business investments in Europe more than doubled from 2010 to 2011. Propping up Europe now could forestall a far-more-expensive economic collapse down the road.

2. China could gain political leverage over the West
In "desperate need of financial support," Europe might be willing to make big political concessions to China, writes Thomas H. Naylor at CounterPunch. For instance, as a prerequisite for aid, China demand that the West quit threatening Iran over its nuclear program. Such a move would "effectively checkmate" the U.S. and Israel. "All of this makes Washington very nervous," and the U.S. "does not relish the thought of the EU becoming financially dependent on Beijing."

3. China could also bolster its clout at the IMF 
China should "pony up," writes Wayne Arnold at Reuters, but buying European bonds directly is "too risky." Instead, China should funnel its aid through the IMF — and thereby earn a "bigger role at the world's currency watchdog." The U.S. dollar is still the world's reserve currency, which leaves China vulnerable to the whims of U.S. monetary policy. China views the IMF as the "best counterbalance to such tides," and winning more influence at the powerful organization ought to be a "no-brainer."

 

THE WEEK'S AUDIOPHILE PODCASTS: LISTEN SMARTER

Subscribe to the Week